Cheney said the tax exemption allows credit unions to save their 92 million members about $7.5 billion a year. "Credit unions' favorable pricing also helps to improve bank rates and moderate their fees. Yet faced with federal income tax liability, a number of credit unions may no longer feel compelled to operate a credit union and could close or convert to for-profit banks. These institutions have far different incentives than do credit unions and are driven by the desire to return a profit to shareholders rather than ensuring favorable rates are provided to consumers," he wrote to NCFRR co-chairs Alan Simpson and Erskine Bowles.

Cheney added, "Further, taxing credit unions would also divert funds that would otherwise be used to build capital and provide a cushion against any future losses, thereby protecting members and the National Credit Union Share Insurance Fund."

The current credit union tax exemption results in no more than $1.5 billion less revenue per year for Uncle Same but revenues to be gained would be even lower because of credit union conversions to banks or having to lower dividends to their members.